Questions and Answers
on 2012 UI Law Changes

1. How are RI employers affected by the legislative changes made to the RI Unemployment Insurance (UI) program in 2011 by the Governor’s budget as passed by the General Assembly?

New legislation put a two-tier UI taxable wage base in effect beginning calendar year 2012. Tier 1 sets the state’s Unemployment Insurance taxable wage base at 46.5 percent of the statewide average annual wage for most employers. Tier 2 impacts employers in the highest tax group (9.79%), and sets the taxable wage base $1,500 higher than the wage base for employers in lower tax groups.

This means that the 2012 UI taxable wage base for most employers will be $19,600. This figure is based upon the 2010 RI average annual wage of $42,113 and represents a $600 increase over the 2011 taxable wage base. The 2012 UI taxable wage base for employers in the highest tax group (9.79%)—approximately one quarter of all RI employers—will be $21,100.

2.
Why was it necessary to raise the UI taxable wage base?

The national recession, coupled with the rising unemployment rate, put a severe strain on the RI Employment Security Fund, which consequently depleted its reserves in March 2009. Since that time, Rhode Island has borrowed over $335.3 million from the federal government in order to continue to pay Unemployment Insurance benefits to its unemployed workers and repaid $98.5 million through July 2011. Our current loan balance was $236.8 million as of July 31. 2011.

The loans will be repaid through recent UI reform package that will generate revenues through greater UI taxes and incur savings by reduced UI benefits. Based on current projections, the state expects it federal UI loans to be repaid some time in calendar year 2015.

Without the legislative changes made to the taxable wage base and benefits structure, the RI unemployment insurance system would have remained in a precarious position and would have been unable to rebuild reserves in preparation for future recessions.

3.
What legislative changes were made to the UI benefit provisions?

Six changes to the UI benefit provisions will take effect on July 1, 2012:

• Previously, the state maximum UI weekly benefit amount was set at 67 percent of the statewide average weekly wage. This figure, calculated on an annual basis, was $566 in 2011. Recent legislative changes will freeze the weekly benefit amount at the 2011 level until such time that the $566 figure represents less than 57.5 percent of the statewide average weekly wage. Moving forward from that point, the maximum weekly benefit will be unfrozen and calculated at 57.5 percent of the statewide average weekly wage.

• As of July 2012, an individual’s weekly benefit amount will be based upon the average of the total wages in the two highest quarters of his/her base period rather than the wages earned in the single highest quarter. This avoids any skewing of the benefit rate for those who had worked overtime or received bonuses during only one quarter of their base period.

• Currently, the weekly benefit calculation is meant to replace 60 percent of wages earned during the highest quarter of a base period. Beginning in July 2012, the weekly benefit calculation will replace 57 percent of the average wages earned over the highest two quarters in a base period. This calculation will be adjusted further in 2013 and 2014 to replace 54 percent and 50 percent, respectively, of the average wages earned over the highest two quarters.

• In 2012, the maximum amount that an individual may collect will be lowered from 36 percent to 33 percent of the individual’s total base period wages. The effect is to increase the number of weeks a claimant must have worked during his/her base period in order to be eligible for the maximum duration of benefits, which is 26 weeks.

• The earnings requirement for individuals disqualified for a Voluntary Quit, a Discharge for Misconduct or a Refusal of Suitable Work has been changed so that a worker must earn at least equal to his/her benefit rate for a minimum of eight weeks before they can be eligible for unemployment insurance benefits.

• Individuals who receive severance pay from their employers will have the start of their claim delayed by the number of weeks of severance pay received from their employer. If the employer does not specify the number of weeks of severance pay, the individual’s severance pay will be prorated based on the individual’s weekly benefit amount.

4. What changes in the Federal Unemployment Insurance Tax (FUTA) will affect RI employers in 2012?

Employers normally pay a net federal UI tax of 0.6 percent of the first $7,000 in wages paid to each of their employees, with a maximum of $42 per employee. However, in Rhode Island and other states that have had federal loans for more than four years, employers will see a retroactive increase of 0.9% in their federal tax for 2013.

This will raise an employer’s total federal UI tax to 1.5% on the first $7,000 in wages paid to each employee. The 0.9% increase will mean employers will pay up to an additional $63 per employee for 2013. The additional federal assessment, due by January 31, 2014 on an employer’s 2013 wages, will be used to reduce RI’s outstanding federal loan balance